Academic journal article International Journal of Business

An Analysis of Day-of-the-Week Effects in the Egyptian Stock Market

Academic journal article International Journal of Business

An Analysis of Day-of-the-Week Effects in the Egyptian Stock Market

Article excerpt

ABSTRACT

This study investigates daily stock market anomalies in the Egyptian stock market using its major stock index, the Capital Market Authority Index (CMA), to shed some light on the degree of market efficiency in an emerging capital market with a four-day trading week. The results indicate that Monday returns in the Egyptian stock market are positive and significant on average, but are not significantly different from returns of the rest of the week. Thus, no evidence was uncovered to support any daily seasonal patterns in the Egyptian stock market, indicating that stock market returns are consistent with the weak form of market efficiency. These results should be interpreted with caution since the Egyptian stock market has only a limited number of stocks that are actively traded.

JEL: G150, G140, O530

Keywords: Egyptian stock market; Monday effect; Efficient market hypothesis

I. INTRODUCTION

A large number of studies have documented a day-of-the-week effect and other seasonal anomalies in asset returns in U.S. financial markets. One of these anomalies is the Monday seasonal effect, which typically occurs when asset returns are lower or negative on Mondays relative to other days of the week (see for example French (1980), Gibbons and Hess (1981), Lakonishok and Levi (1982), Smirlock and Starks (1986), Lakonishok and Smidt (1988), Wang, Li and Erickson (1997), Kamara (1997) and Mehdian and Perry (2001)). There are also studies that support the presence of stock return anomalies in international asset markets (see Gultekin and Gultekin (1983), Kim (1989), Jaffe, Westerfield and Ma (1989), Solnik and Basquest (1990), Dubois and Louvet (1996) and Mehdian and Perry (1999)).

The evidence of equity market anomalies contradicts the prediction of the efficient market hypothesis (EMH), at least in its weak form, because the predictable movements in asset prices provide investors with opportunities to generate abnormal returns. In addition, stock market anomalies may result from an inefficient flow of information in financial markets, which is a violation of an underlying assumption of the EMH.

While seasonal effects in advanced equity markets have been investigated extensively, emerging markets have received less attention. In emerging markets, it is possible that the dissemination of information is restricted due to the possible manipulation of financial information by market participants and a lack of strict disclosure requirements imposed by the stock market regulatory agencies. We therefore focus on the stock market in Egypt to test for daily stock market anomalies in a typical emerging market. The Egyptian case is also interesting because it operates on a four-day per week trading cycle, in contrast to the more traditional five-day cycle of developed equity markets.

The objective of this paper is to investigate daily stock market anomalies in the Egyptian stock market using its major stock index, the Capital Market Authority Index (CMA), to shed some light on the degree of market efficiency in an emerging capital market. We examine daily stock market returns from April 26, 1998 to June 6, 2001, the period over which Egyptian equities were consistently traded on a four-day per week basis. The results of the paper indicate that Monday returns in the Egyptian stock market are positive and significant, but are not significantly different from returns of the rest of the week. We uncover no evidence to support the presence of any daily seasonal patterns in the Egyptian stock market, indicating that stock market returns there are consistent with the weak form of market efficiency. The rest of the paper is organized as follows. Section II provides an overview of the Egyptian stock market. The data and methodology employed are described in Section III, and Section IV presents the empirical results. Finally, Section V contains a summary and conclusion.

II. …

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